Auto-part makers brace for bumpy quarter ahead

Mumbai: Indian auto-component makers expect sales to grow slower than usual in the current quarter to June as high interest rates erode vehicle demand, but expect the momentum to return by late 2007 on new launches.

Parts makers bet on no more than 10% sales growth in the quarter, compared with 25-30% seen in the last two years. April-June sales would also be less than the quarter to March, they said.

“June is traditionally the weak quarter, only that it looks weaker this year,” Santosh Singhi, finance director of Amtek Auto Ltd, said. “I will be alarmed if it spills into the next few quarters.”

An examination of the order books of the top auto-parts makers revealed that sales of top car maker Maruti Udyog Ltd would fall in this quarter, but for the new models.

Domestic car sales, which grew over 15% in January-March to 334,322 units, rose only 11% in April, when two-wheeler sales fell nearly 6%, suggesting a slowdown.

“It is there for every one to see... This quarter definitely does not look bright,” Surinder Kapur, chairman of Sona Koyo Steering Systems Ltd, said. Sona sees 2007-08 sales growth slowing to 15% from 80%.

Analysts expect commercial vehicle sales growth to halve in the next two years from a 20% average over the last three years. Most commercial and passenger vehicles are financed through loans and the higher rates are driving away buyers.

“The initial signs of an automobile slowdown are already evident,” brokerage Prabhudas Lilladher said in a recent report. The threat of high interest rates has loomed over the loans-driven automobile sector since the start of the year, but its fuller impact was being felt now after a lag, analysts said.

Lending rates have risen by 300-350 basis points from a year earlier as the central bank raised rates five times since last June seeking to rein in credit growth and inflation.

Maruti is already bearing the brunt of the interest rates and is offering incentives to dealers and customers to pep up sales. “It has already started impacting,” managing director Jagdish Khattar had said recently.

The appreciation of the rupee against the dollar wasn’t helping either. “It will be a double hit. Domestic sales to auto firms looks to be weak and a hardening rupee will chew away export rupee receipts,” Korde said.

The rupee has also risen 9.2% against the dollar so far in 2007, further denting the rupee receipts on exports.

However, auto-parts makers see a turnaround by the end of the year when new launches or new variants could be coming. New launches grip customer interest, forcing auto firms to build inventory of components and spares ahead of the launch.

“It is a cycle... but it also allows us to engineer, get our products right and keep our pipeline healthy,” Rajiv Bajaj, executive director of Rico Auto Industries Ltd, said.